In today's Finshots we see how short videos could potentially turn the tide for Meta

The Story

You’ve probably heard of it already — Meta (formerly known as Facebook) is going through a bit of a rough patch of late. Last week, the company announced its earnings and long story short — it was worse than anyone expected. But perhaps the most unsettling news to come out of Meta’s earnings debacle was this — Facebook lost daily active users (DAU) for the first time in 18 years. And between the third quarter and the fourth quarter of 2021, almost half a million people stopped logging into Facebook every day. Raise your hands if you haven’t logged on to FB in a long while, forgotten your password or outright deleted your account. Congratulations you have added to Facebook’s misery.

Although Facebook’s DAU for the period is still mighty at around 1.93 billion users. The thought of Facebook’s growth potential plateauing was enough to spook the market and give Meta a black eye. The stock price tumbled more than 25%, with investors wiping off ~$230bn in market value. Setting a record for the largest one-day drop in stock market history.

But that’s not the only thing weighing Meta down. The company makes most of its money through targeted advertising. However, Apple recently implemented a privacy update forcing apps like Facebook to seek explicit permission from users before tracking them across apps and websites. Unfortunately for Meta, a lot of iPhone users chose to pull up the drawbridge. Around 96% of iPhone users chose to block apps like Facebook from tracking their activity. And for a company that relied heavily on this data, this was a body blow. The company forecasted that this privacy change alone could eat around $10 billion in sales.

Cornered on all sides and Metaverse still being a distant dream, Meta now needs a new plan to revitalize its fortunes.

The answer for one could lie in byte-sized viral videos that are all the rage these days. If you have been hooked on Instagram reels for hours on end, watching random strangers dance to hit songs or lip-sync those nice tunes, you would know.

Except, Meta isn’t the top dog in this arena too. It is trailing behind world leader, TikTok.

TikTok has a billion users and legions of committed content creators to keep those users hooked onto the app. It was the most-downloaded app of 2021 (even without a presence in India). It outshone Instagram in terms of popularity among young users, despite Instagram coming up with its own short video format Reels in August 2020.

According to data published by Forrester, 63% of Americans between the ages of 12 and 17 used TikTok on a weekly basis in 2021, up from 50% in 2020. In comparison, Instagram saw a reversal — from 61% in 2020 to 57% in 2021. Clearly, Instagram is not the preferred choice when it comes to short videos. And it explains where a good chunk of Meta’s users prefer to be.

However, TikTok has a chink in its armour. It is abysmal when it comes to monetizing its own app and just as bad when it comes to paying content creators.

Just ask Hank Green who has ~6 million TikTok followers. He made a detailed YouTube video describing how it sucks to be a content creator on TikTok. He makes ~$0.02 for every 1,000 views on TikTok. In contrast, successful creators can usually make around $1 for every 1,000 views on YouTube — nearly 50x more than TikTok.

Then there is MrBeast (88 million YouTube subscribers and 32.5 million followers on TikTok) who revealed he earned somewhere between $18.64 and $25.10 daily.

You get the point.

So perhaps Zuckerberg could borrow a page from YouTube's playbook. Pour in lots and lots of money and attract as many social media celebrities and invest in their growth. It may sound impractical but YouTube has been doing it for years. Google for instance shares advertising revenues with over 2 million video producers, most of whom create content on YouTube. In the past three years, YouTube paid out more than $30 billion to creators. Last year alone YouTube distributed nearly $16 billion to content creators. Money that YouTube primarily earns from showing ads.

Zuckerberg believes in Reels’ long-term viability. And if he needs to take a whack at TikTok, the best weapon in his arsenal would be his enormous cash pile. More spending — more creators — more content — more users — more ad revenues — maybe it will work.

Until then…

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